Economic Buzz: Germany?s private sector slips into contraction as demand weakens and costs rise

Business activity in Germany?s private sector declined in April for the first time in nearly a year, according to the latest S&P Global Flash PMI data, as the war in the Middle East weighed on demand and costs. The Composite Output Index fell from 51.9 in March to 48.3, dropping below the 50.0 threshold and marking the weakest reading since December 2024.

The downturn was mainly driven by the services sector, where activity fell sharply to 46.9, the lowest level in almost three-and-a-half years. Manufacturing output continued to grow, but the pace slowed significantly, with its index easing to 51.7 from a 49-month high in March.

New business declined at the fastest rate since December 2024, led by a sharp fall in services demand, which more than offset a modest rise in manufacturing orders. Firms cited geopolitical uncertainty as a key factor behind weaker customer demand.

Cost pressures intensified, with input prices rising at the fastest pace since November 2022, driven by higher energy, fuel and transport costs. Manufacturers also reported rising prices for materials such as metals and plastics, with cost inflation in the sector reaching a three-and-a-half-year high. Companies passed on these increases to customers, pushing selling price inflation to its highest level in over three years, with services and manufacturing charges rising at 35- and 39-month highs respectively.

Employment continued to decline, extending a nearly two-year trend, while backlogs of work fell at the fastest pace in eight months. Business confidence weakened further, turning negative for only the second time in over two-and-a-half years and dropping to its lowest level since September 2024.

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